Understanding Palm v. 2800 Lake Shore Drive – A practical perspective

Earlier this month the Illinois Appellate Court issued an order that is causing quite a stir in condo association circles. Palm v. 2800 Lake Shore Drive is a case that relates to how boards of condo associations conduct their business. Specifically, how board members communicate and make decisions.

On the surface the ruling appears to introduce an incredible level of difficulty to the process that a board must follow in order to perform their duties. Many of the updates that I have read from attorneys and other professionals in the industry seem to enforce the idea that the life of a Board member may soon become hell on earth.

As a property management company in Chicago supporting associations that are directly impacted by these rulings I wanted to determine how this case will actually affect our clients. Secondly I wanted to provide a clear overview of the issues covered in the case, and hopefully, provide guidance to board members on what changes they should make, if any.

To assist me in understanding the legal matters of the case I reached out to one of the top condo law attorneys in Illinois, Ryan Shpritz. He is a partner at Kovitz Shifrin Nesbit, (ksnlaw.com) a legal firm in Illinois dedicated to Condo Law. I was relieved to find that his view of the court’s decision is not as doom and gloom as some of the opinions I had been reading.

Details of the Case

In short, a unit owner within a condo association sued the Board for improperly performing their duties. The court sided with the unit owner and reviewed a handful of key points in their decision. Some of the ideas reviewed are nothing new, but one is, which is causing the stir.

As Shpritz explained it to me, the ruling covered three basic areas:

1) Decisions made by the board must occur at an open meeting. - This of course is nothing new and has long been a requirement in the Illinois Condominium Property Act. If a board is going to vote on something, which is how official decisions are made, they need to call a meeting and properly notify all unit owners in advance. At the meeting the vote occurs and the event should be recorded in the meeting minutes.

2) The board must adhere to their Declaration and Bylaws – This is also old news. Unless the association’s governing documents conflict with the Illinois Condominium Property Act or other laws the board must follow the rules and processes detailed within. This is why a condo attorney cannot typically provide a generic set of instructions or guidance that apply to all board members. You must first analyze the association’s specific governing documents to look for any items explicit to that entity.

3) Boards cannot conduct business outside of an open meeting - The court decided that any discussions related to condo matters by board members are considered “conducting business”. This includes workshops, group emails and conference calls where association matters are being discussed.

According to the Court’s extremely aggressive interpretation of “conducting business”, this ruling means that boards are not allowed to talk, chat, email or otherwise communicate about the association outside of a full-fledged meeting in which all unit owners have been properly notified in advance.

Exceptions to this rule are the three exclusions detailed in Section 18(a)(9) of the Illinois Condominium Property Act. These are the same topics that board members should discuss in a private session at a meeting. Specifically, “actual or probable litigation, appointment, employment or dismissal of an employee, or violations of rules and regulations or unpaid assessments.”

Related to this topic the court also found that email voting is not permitted. All voting must take place at an open meeting. The common practice of discussing and deciding upon small issues through email is unlawful.

Rule 23: Our Hero (At least for now)

It is difficult to imagine how a condo board could function under the burden of needing to have all discussions occur within the confines of an open meeting. In practice I’m not sure this would even be possible considering the periodic requirements to meet with onsite contractors and other scenarios where the discussions could not reasonably occur at a scheduled board meeting. One could imagine a spike in board vacancies and associations having a difficult time finding willing (unpaid) board participants. How many unit owners could afford to commit to weekly board meetings?

The good news is that all rulings by the Appellate Court are not created equal. Explained Shpritz, “The key is understanding that this decision is a Rule 23 order, which means that it cannot be cited as binding precedent in other cases.” After a dozen or so follow up questions I was able to conclude that this simply means that the court’s decision is specific to this case alone and has no effect on other condo associations. Meaning, the ruling has not become law that associations must follow.

What it does mean is that if similar cases are heard in the future, the judges may look to this case as an example in framing their opinion. Shpritz explained it well, “A rule 23 basically means that if you ran into a judge in a bar and asked him to review a case off-the-record, this is probably how he’d end up ruling.” A Rule 23 gives you a good guess at how the courts will rule in future similar cases.

What Should Boards Do Now?

I would expect the advice from most attorneys to be something along the lines of strictly following all current regulations and modifying behavior as much as possible to meet the new requirements discussed in the court’s ruling. Of course I would agree with this guidance from a purely legal perspective. In order to answer this with any sort of usable advice, however, I think it is important to consider the practical side of these rules.

The real-world answer to the question in my opinion becomes a function of analyzing risk. In the typical life of a board member there is no time to attend an increased number of board meetings. In order for progress to be made most boards have no choice but to communicate via email and use technology to discuss issues and make decisions.

The truth is that even boards with the best of intentions find it difficult to adhere to all of the requirements defined in the current condo laws. If these additional laborious requirements in the court’s ruling become law I would expect most owners to be unable or unwilling to participate on the board due to the associated time commitment and outright frustration. These new requirements would make trying to function as a board nearly impossible.

As it stands today, with the Rule 23 in play, a board needs to evaluate the risk associated with not following these regulations. This is the same thought process that a board needs to follow when considering not following any of the regulations within the current laws. The key questions are:

• What is the worst case outcome if we fail to follow the rule?
• What is the likelihood of this occurring?
• Are we comfortable with that risk versus the time and effort associated with following the rule?

The worst case scenario with regards to not following one of these “new rules” would be having a suit filed against the board by a unit owner. While I am not an attorney I would suspect that most would agree that the most likely outcome of such a suit would be an order by the court requiring that the board must begin following these rules. (This was the outcome of the Palm v. 2800 Lake Shore Drive case) No jail time, no torture, but rather a court order requiring the board to begin following the rules.

In order to achieve such a minor victory this would require an owner to be so upset that the board was having discussions outside of a meeting, for example, that he or she was willing to pay thousands of dollars in legal fees to pursue the case. What are the odds of this happening in your association? For most associations I would assume this is very unlikely.

To be fair it is possible for an owner to also claim damages in such a case. (Meaning the owner is also suing for money) Proving such a claim would seem a difficult challenge, however, unless the board was grossly negligent in their actions. Interestingly enough the court noted in their recent ruling that a board member may be held personally liable for their actions if the offenses are of a severe enough nature. Again, would this happen due to a board making decisions via email? Highly unlikely.

In the end I would suspect that most boards will find that the risk associated with not following these new rules is so low, and the odds of receiving any kind of punishment so remote, that they can basically be ignored. If this type of ruling ever becomes law then the board would need to reevaluate the risk analysis.

I would not expect all attorneys to agree with this approach, but this is where the conflict between the idealistic and practical aspects of these laws occur. You would be hard-pressed to find a more potent example of this conflict than the court’s ruling in this case.

*This article is not legal advice and is solely the author’s interpretation of the case. You should always consult with an attorney on these matters.